There are many approaches to bringing buyers and sellers together in financial markets. These approaches can generally be assigned to one of two categories: exchange traded markets, or over-the-counter markets. Market participants face particular challenges to economic efficiency in over-the-counter markets where market-makers are more disparate than on exchanges and assets can trade in multiple locations at multiple prices simultaneously. Over-the-counter trading is prone to the risk of fragmentation wherein certain buyers and sellers do not have access to the full range of liquidity available in the marketplace increasing the costs of execution or even impeding execution. Also, there may be a resultant lack of transparency where some participants do not see the most recent and accurate prices for a given asset, increasing price volatility and decreasing the quality of execution. Although inefficiencies in price discovery from fragmentation and lack of transparency are not limited to over-the-counter markets, they are particularly salient in markets where there is no central exchange to concentrate the communication of buyers and sellers and provide structures to maintain orderly markets.
With the growth of trading financial products (such as, for example, stocks, options, futures, bonds and other fixed income securities, forward contracts, commodities and commodities contracts, and the like) over-the-counter, market participants have an increasing need to add efficiencies in their trading operations. One area where efficiencies have been late to arrive is in inquiry lists—or the ability to request bids or offers on multiple issues simultaneously. This process has conventionally been labor intensive. An institutional investor may put together a list of items to sell and items to buy. These lists are then disseminated to various dealers for reply. For many years this process was done using a combination of paper, telephone, Teletype and fax machines. Lists are sent to one or more dealers with due-in times set for later that day (or beyond). Dealer responses come back to the investor at various times via various means (phone, fax, teletype, etc.). The responses are collated and analyzed by the sender. Ultimately the investor would make decisions to buy or sell (or not buy or sell) based on the analysis of the data. This work is labor intensive for both the institutional investor and the dealer. It is not uncommon for this process to take many man-hours, primarily due to the need to collate the data and then analyze the responses before acting on the responses and then again spend more time on the latter stages of a trade when final pricing and other particulars need to be agreed for each list item.
One area where efficiencies have been late to arrive is in inquiry lists—or the ability to request bids or offers on multiple issues simultaneously. This process has always been labor intensive. An institutional investor may put together a list of items to sell and items to buy. These lists are then disseminated to various dealers for reply. For many years this process was done using a combination of paper, telephone, Teletype and fax machines. Lists are sent to one or more dealers with due-in times set for later that day (or beyond). Dealer responses come back to the investor at various times via various means (phone, fax, teletype, etc.). The responses are collated and analyzed by the sender. Ultimately the investor would make decisions to buy or sell (or not buy or sell) based on the analysis of the data. This work is labor intensive for both the institutional investor and the dealer. It is not uncommon for this process to take many man-hours, primarily due to the need to collate the data and then analyze the responses before acting on the responses and then again spend more time on the latter stages of a trade when final pricing and other particulars need to be agreed for each list item.
With the advent of proprietary networks and the Internet, communication methods such as email and the like have, to some extent, streamlined the process. For example, using a standard email account, investors can post their bid and/or offer lists to one or more dealers. Recipients of the lists can review the list and respond at or before a specified time. Although this method is more efficient than previous means, investors were still required to collate the responses across several mediums and analyze the responses, and then again through various mediums act on said responses until each item on the list is traded or not traded.
There are many reasons why institutional investors may try to perform multiple transactions at or near the same time. One example of this can be found in the area of portfolio management. For example, portfolio managers and other market participants find the need from time to time to re-balance their portfolios. Although this can and does happen at any time, this is a common occurrence near month end and quarter end. When going through this re-balancing process the portfolio manager may decide to do one or more of the following:                Reduce their position on certain holdings in the portfolio        Remove certain holdings from the portfolio        Increase their position on existing holdings in the portfolio        Add new items to the portfolio        
Conventional methods for trading various quantities of a certain bond or multiple bonds in a secondary market require the seller to locate a buyer or buyers in a “bids-wanted” process. This process utilizes a broker intermediary for settlement in a process that causes the buyer and seller to appear anonymous to each other. There are a number of important disadvantages to these conventional processes.
First, any “bids-wanted” process limits trading to the inventory presented by sellers. Bids-wanted is a seller-initiated process, with buyers in a reactive mode. This is generally consistent with the municipal bonds market focused on by some prior art. See, for example, U.S. Pat. No. 5,915,209, issued on Jun. 22, 1999 and entitled “Bond Trading System.” The municipal bond market is inventory driven. There are numerous small unique lots of bonds. Municipal bond buyers peruse lists of bonds each day that are available either in the secondary market or by primary offerings. Broker/dealers in the municipal bond market act predominantly on an agency basis connecting buyers and sellers since municipal bonds do not have an active “bonds borrowed” market that would enable sellers to sell bonds they don't own (i.e. “short” bonds). This contrasts with the government bond market and the corporate bond market where there are active security lending markets. The MA system allows for offer lists as well as bid lists. Offer lists allow the buyer to initiate a process, selecting a bond or list of bonds for trading from a reference database without limitation as to whether or not such bond is any system participants' inventory. The offer list allows the buyer to present a list of desired bonds to a selected group of dealers whereupon each dealer may return with offers. The MA system maintains a reference database of potential issues that may be selected, in a manner that buyers and sellers accept as an acceptable standard for defining the bond to be transacted.
Second, a broker intermediated anonymous settlement process is fundamentally different from a direct counter-party settlement where the parties are known to each other prior to trade execution. The prior art broker process allows various parties to trade with each other without those parties having any established financial or credit relationship with each other. The various parties need only have a credit relationship with the central broker in order to conduct their transactions. In the past, this was the most feasible method of conducting such transactions because of the unwieldy task of creating, maintaining, and referencing a database of unique and dynamic trading and credit relationships between numerous parties in the financial markets. However, this presents multiple limitations to investors, particularly to investors in less liquid products (e.g., products which do not mostly trade on an exchange), investors in credit products such as corporate bonds, and also to large investors.
Investors in less liquid or illiquid products derive considerable economic value from developing and maintaining direct relationships with a number of dealer market-makers who, on the basis of that relationship, are willing to take risk as a principal (i.e. put up their own balance sheet) to buy bonds from the investor or sell bonds that they do not own to the investor. This liquidity expectation reduces the liquidity component of an investor's net value at risk. In the past, the investor had to balance the needs to maintain relationship versus the economic efficiencies of being able to show bonds, for example on a bids-wanted basis, to a large number of dealer in a timely manner. The MA system allows the investor to gain the economic efficiency of instantaneous communication with many without having to give up the ability to transact business in a way that counts towards their relationship building. The MA system establishes a number of criteria required for participation and provides a unique facility that permits the creation, maintenance, and referencing of thousands of distinct economic relationships. These relationships are defined across a matrix including legal entities, members of legal entities, products, and jurisdictions. The MA system provides for the instantaneous retrieval and control by these relationships at the moment of bid or offer list creation by an investor. The investor can see their relationships in the MA system, and can select from those relationships and transact by directly with those relationships.